Round 2 of Medicare’s Durable Medical Equipment, Prosthetics, Orthotics and Supplies (DMEPOS) competitive bidding program starts July 1, 2013. This round expands the DMEPOS competitive bidding program to beneficiaries in 91 additional major metropolitan areas across the country, and adds new product categories and a mail-order competition for diabetic testing supplies (see areas and new product categories outlined in this Fact Sheet (PDF)). In California, Round 1 and 2 competitive bidding areas are: Bakersfield-Delano, Fresno, Los Angeles-Long Beach-Santa Ana, Oxnard-Thousand Oaks-Ventura, Sacramento-Arden-Arcade-Roseville, San Diego-Carlsbad-San Marcos, San Francisco-Oakland-Fremont, San Jose-Sunnyvale-Santa Clara, Stockton, and Visalia-Porterville. Round 1 started in January 2011 and will end December 31, 2013. Round 1 areas will be recompeted for a 3-year period beginning January 1, 2014. It should also be noted that by 2016 all areas of the country will be subject either to DMEPOS competitive bidding or payment rate adjustments using competitively bid rates, thus ensuring all Medicare beneficiaries will benefit from the anticipated savings.

A tool to prevent fraud and cut costs

The DMEPOS competitive bidding program was established as part of the Medicare Modernization Act of 2003 to create more accurate payment rates for equipment and supplies, which, in turn aims to cut costs and reduce fraud. The Centers for Medicare and Medicaid Services (CMS) has paid durable medical equipment (DME) suppliers on fee schedules that date back to the 1980s, which resulted in large profits for individual DME items. This generous payment schedule attracted fraudsters and contributed to the proliferation of DME and supplies-related scams.

Under the competitive bidding program, DMEPOS suppliers must compete to become a Medicare contracted supplier. Only companies who offer competitive pricing, and meet more stringent eligibility, quality and financial standards have a chance at being selected as a Medicare contracted supplier. This competition among companies vying for a Medicare contract is what is driving the prices down.

Beneficiaries living in one of these competitive bidding areas should make sure to only use DMEPOS suppliers who have been selected and have a contract with Medicare. (You can search for suppliers by zip code on Medicare.gov.) This way Medicare will cover your medically necessary supplies and/or equipment. If a non-contracted supplier in one of these competitive bidding areas (CBAs) tries to sell you any DMEPOS items covered by the competitive bidding program, they must notify you that they are not a contracted supplier, that you are responsible for all costs (Medicare won’t pay), and they must present you with an Advance Beneficiary Notice before completing a sale.

National mail-order competitive bidding program

Beneficiaries who get their diabetic testing supplies delivered to their home, should also make sure to only use contract suppliers for the national mail-order bidding program starting July 1, 2013. Your home-delivered, Medicare-covered testing supplies will only be available through one of these contracted companies. If you don’t care about using mail-order, you can go to any retail store that is enrolled with Medicare and buy your supplies there. This mail-order bidding program applies to all beneficiaries in all 50 states.

In terms of payment, Medicare’s approved payment amount will be the same for mail-order and non-mail-order diabetic testing supplies. The cost for beneficiaries, however, can be different. Contracted mail-order diabetic testing suppliers are required to accept assignment, meaning they accept Medicare’s approved amount as payment in full and can’t charge you more than any unmet deductible and your 20% co-insurance. Non-mail-order companies (i.e. retail stores) that accept assignment also can’t charge you more than your deductible and 20% coinsurance. Retail stores that do not accept assignment, however, can charge you more than the 20% coinsurance and any unmet deductible. Therefore, if you choose to get your supplies from a retail store, make sure to choose one that is enrolled in Medicare and accepts assignment and thus keep your costs down.

Medicare had a 42% reduction in costs for certain durable medical equipment and supplies as a result of Round 1. Savings from Round 2 are expected to be even greater at 45% for various equipment categories, including oxygen equipment, standard wheelchairs, walkers and hospital beds. Also, with using a single payment amount to reimburse for diabetic testing supplies starting July 1st, regardless of whether supplies are purchased through mail-order or non-mail-order suppliers, CMS estimates that beneficiaries will save an average of 72% on these supplies.

For example, under the current fee schedule, the average Medicare monthly payment to suppliers for diabetes testing supplies is $77.90. Beneficiaries pay 20% of that amount, or about $15.58. Under the mail-order competitive bidding program, the average Medicare monthly payment will go down to $22.47, with beneficiaries paying about $4.49.

In total, the DMEPOS competitive bidding program is projected to save the Medicare Part B Trust Fund $25.7 billion and beneficiaries $17.1 billion between 2013-2022, according to the CMS Office of the Actuary.

Some concerns for beneficiaries

While the savings are projected to be high, many advocates and beneficiaries alike have some concerns. For example, with the mail-order program, only 23 different companies have been awarded contracts. Most likely, the majority of Medicare beneficiaries who currently have their diabetic supplies delivered to their homes will have to switch companies. To do this, they will need a new prescription rom their treating physician for the new company. If a beneficiary waits until they are out of supplies to reorder, they may have a gap when they have no supplies. Also, while there are 23 contracted companies, not all companies supply all brands of testing supplies. If a beneficiary wants only a certain brand, there may be some delay in obtaining the needed testing supplies since they will need to find a company that handles their brand or they will need to change the brand of testing supplies.

Another concern is for beneficiaries who obtain all prescriptions from a store pharmacy, but who utilizes the pharmacy’s home delivery service. Under the competitive bidding program, beneficiaries will no longer be able to use this home delivery service for their diabetic supplies if they want Medicare to cover them. Instead they will need use one of the contracted companies’ mail-order programs. This change could be confusing for some Medicare beneficiaries, especially for home-bound beneficiaries, since they will continue to get their other prescriptions home-delivered by the retail store.

A few products may be grandfathered into the DMEPOS to prevent any possible transitional harm to beneficiaries using products that are considered to be a “lifeline,” such as oxygen or oxygen equipment. One example is a beneficiary on oxygen may be able to continue receiving their oxygen and renting equipment from their non-Medicare-contracted supplier, if the supplier elects to become a “grandfathered” supplier. This means a supplier may continue to rent you equipment if you were renting when the DMEPOS program starts. If you start renting additional equipment from the grandfathered supplier after the program starts, Medicare will not covered it. If you’re renting equipment that’s eligible for grandfathering, your supplier will let you know in writing 30 business days before the program begins whether it will or won’t become a grandfathered supplier.

Notices sent to 5.7 million beneficiaries as of 5/13

On May 13, 2013, Medicare mailed out letters to about 5.7 million beneficiaries who live in one of the 91 DMEPOS Round 2 areas and who use at least one of the items included in the program, and to those using diabetic testing supplies across the country. The letters, as well as an introductory brochure, national mail-order program fact sheet and other program education materials can be accessed on the DMEPOS section of CMS’ website.

For more information and a comprehensive question and answers section on DMEPOS Round 2, see Medicare.gov’s section on DMEPOS competitive bidding.

About Karen Fletcher

Our blogger Karen J. Fletcher is CHA's publications consultant. She provides technical expertise, writing and research on Medicare, health disparities and other health care issues. With a Masters in Public Health from UC Berkeley, she serves in health advocacy as a trainer and consultant. See her current articles.

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